1This chapter is also relevant to employees of SMCR firms performing functions specified as FCA certification functions.

1. (1)

   1This chapter is about the FCA’s certification regime.

2. (2)

   Under this regime, a firm should ensure that its employees only perform an FCA certification function if they have a certificate issued by that firm to perform that function.

3. (3)

   The purpose of this chapter is to specify ‘FCA certification functions’ and to give guidance on the FCA’s certification regime.

1Most of the requirements of the certification regime are in the Act. This section summarises and gives guidance on them.

1 SYSC TP 5 and SYSC TP 7 contain transitional material about the certification regime. This includes material about the fact that:

1. (1)

   the requirement in SYSC 27.2.3G did not come into force at the same time as the rest of the certification regime; and

2. (2)

   the certification regime came into force at different times for different types of firm.

1Under section 63E(1) of the Act, a firm must take reasonable care to ensure that no employee of the firm performs an FCA certification function under an arrangement entered into by the firm in relation to the carrying on by that firm of a regulated activity, unless the employee has a valid certificate issued by that firm to perform the function to which the certificate relates.

1Under section 63F of the Act, a firm may issue a certificate to a person only if the firm is satisfied that the person is a fit and proper person to perform the FCA certification function to which the certificate relates.

1Under section 63F of the Act, in assessing if a person is fit and proper to perform an FCA certification function, a firm must have regard, in particular, to whether that person:

1. (1)

   has obtained a qualification;

2. (2)

   has undergone, or is undergoing, training;

3. (3)

   possesses a level of competence; or

4. (4)

   has the personal characteristics,

required by general rules made by the FCA.

1 FIT 1.3 provides guidance to firms about the criteria that the FCA would expect the firm to consider in assessing if a person is fit and proper to perform an FCA certification function.

1 SYSC 22 (Regulatory references) deals with obtaining references from a previous employer when a firm is planning to appoint someone to perform a certification function as part of its assessment of whether that person is fit and proper.

1. (1)

   1A person seconded from a contractor may fall into the certification regime. The material in SYSC 27.4.1G is relevant to when this is the case.

2. (2)

   In deciding whether a person seconded from a contractor is fit and proper, the firm may take into account information and references from the contractor.

3. (3)

   In deciding how much reliance to put on the contractor, the firm should take into account:

   1. (a)

      the familiarity of the contractor with the obligations of firms under this chapter, the corresponding PRA requirements and the requirements of the Act described in this chapter;

   2. (b)

      whether any reference directly addresses the criteria in FIT; and

   3. (c)

      the degree to which the firm believes it can rely on the contractor’s judgement about the secondee’s fitness and properness and the grounds for that belief.

1Under section 63F of the Act, a certificate issued by a firm to a person must:

1. (1)

   state that the firm is satisfied that the person is fit and proper to perform the function to which the certificate relates; and

2. (2)

   set out the aspects of the affairs of the firm in which the person will be involved in performing the function.

1. (1)

   1The Act says that a certificate is valid for a period of 12 months, beginning with the day on which it is issued.

2. (2)

   The FCA believes that the Act allows a firm to draft a certificate to expire after fewer than 12 months. The FCA interprets the Act in this way because to require a firm to make a certificate last longer than the firm thinks best is likely to make it harder for the firm to ensure the fitness of its certification employees. That would undermine the purpose of the certification regime in the Act.

3. (3)

   A certificate cannot be drafted to last more than 12 months.

1Under section 63F of the Act, if, after having considered if a person is fit and proper to perform an FCA certification function, a firm decides not to issue a certificate to that person, the firm must give the person a notice in writing stating:

1. (1)

   what steps (if any) the firm proposes to take in relation to the person as a result of the decision; and

2. (2)

   the reasons for proposing to take those steps.

1If, after having considered whether a person is fit and proper to perform an FCA certification function, a firm decides not to issue a certificate to that person, it should consider if the circumstances warrant making a notification to the FCA for a breach of the rules in COCON pursuant to SUP 15.3.11R (Breaches of rules and other requirements in or under the Act or the CCA).

1Under section 63F of the Act, a firm must maintain a record of every employee who has a valid certificate issued by it.

1. (1)

   1A firm need not issue multiple certificates for one of its employees even if they perform several FCA certification functions as part of the same job.

2. (2)

   Similarly, a firm need not issue multiple certificates for one of its employees who performs an FCA certification function that is made up of a number of different functions.

3. (3)

   An example of an FCA certification function in (2) is the material risk taker FCA certification function described in SYSC 27.8.14R. SYSC 27.8.14R says that each function carried out by someone who is covered by that rule is an FCA certification function.

4. (4)

   Rather than having to issue multiple certificates, a firm may, in a single certificate, describe the employee’s functions that involve an FCA certification function in broad terms, and without listing all the activities that the function may involve.

5. (5)

   A firm should assess whether the employee is fit and proper to perform all aspects of the employee’s functions that involve an FCA certification function as described by a certificate.

1. (1)

   1In cases where a certification employee’s role changes to involve a new FCA certification function part way through the 12-month period for which their certificate is valid, the firm may need to reissue the certificate.

2. (2)

   If that new function has different requirements relating to:

   1. (a)

      personal characteristics;

   2. (b)

      the level of competence, knowledge and experience;

   3. (c)

      qualifications; or

   4. (d)

      training;

   the FCA would expect the firm to assess whether the employee is fit and proper to perform that new function before they start it.

3. (3)

   In such a case, the firm should not wait until the point of annual reassessment to determine whether the employee is fit and proper for the new function.

4. (4)

   A firm may not need to issue a new certificate if:

   1. (a)

      applying the conditions in paragraph (2), the firm concludes that no re-assessment is required; and

   2. (b)

      the certificate is drafted broadly enough to cover the new FCA certification function.

5. (5)

   Paragraphs (1) to (4) also apply if a certification employee’s role changes part way through the 12-month period without the new role involving a new FCA certification function.

1. (1)

   1This paragraph gives further guidance on the flexibility a firm has in drafting its certificates.

2. (2)

   A certificate may cover functions that a certification employee is not currently performing, as long as the firm has assessed the employee’s fitness for these additional functions. This is subject to (3).

3. (3)

   When a firm is deciding what a certificate can cover beyond the functions that the certification employee is currently performing, it should take the factors in SYSC 27.2.15G(2) into account. A certificate should not normally cover an additional function if SYSC 27.2.15G(2) would require the firm to consider the employee’s fitness before allowing them to perform it.

4. (4)

   A firm may, if it wishes, restrict a certificate to the functions that the certification employee is currently performing rather than drafting the certificate more widely as described in (2) and (3).

5. (5)

   SYSC 27.2.10G deals with the flexibility a firm has in choosing the period for which a certificate lasts.

1The FCA interprets the phrase ‘dealing with’ in SYSC 27.3.1R as including having contact with clients and extending beyond ‘dealing’ as used in the phrase ‘dealing in investments’. ‘Dealing in’ is used in Schedule 2 to the Act to describe in general terms the regulated activities which are specified in Part II of the Regulated Activities Order.

1The FCA interprets the phrase ‘a client of the firm in the United Kingdom’ in SYSC 27.3.1R as referring to:

1. (1)

   for a client which is a body corporate, its office or branch in the United Kingdom; or

2. (2)

   for a client who is an individual, a client who is in the United Kingdom at the time of the dealing.

1. (1)

   1The certification regime only applies to an employee.

2. (2)

   This definition includes a person who:

   1. (a)

      personally provides, or is under an obligation personally to provide, services to the firm in question under an arrangement made between the firm and the person providing the services or another person; and

   2. (b)

      is subject to (or to the right of) supervision, direction or control by the firm as to the manner in which those services are provided.

1. (1)

   1A person who works for an appointed representative of a firm may fall into the certification regime. In practice, however, they may not meet the conditions for the certification regime to apply.

2. (2)

   One condition for the certification regime to apply to a person is that the person performs a certification function under an arrangement entered into by the firm (see SYSC 27.2.3G). However, unlike the equivalent parts of the Act for the approved persons regime, the Act does not say that the certification regime applies if the function is performed under an arrangement entered into by the employee with a contractor of the firm instead of the firm.

3. (3)

   The certification regime only applies if the person concerned is an employee. This is defined in SYSC 27.4.1G. In many cases, a person working for an appointed representative will not fall into this definition as they may not:

   1. (a)

      provide services to the firm; or

   2. (b)

      be subject to (or to the right of) supervision, direction or control by the firm.

4. (4)

   If none of these limitations on the scope of the certification regime apply, a person working for an appointed representative will be subject to the certification regime, as long as the other conditions in this chapter are met.

1A function does not cease to be an FCA certification function if that function is also a PRA certification function.

1 SYSC 27.5.1R does not apply to FCA certification function (4) (functions requiring qualifications). Where there is an unforeseen absence of an employee performing a function for which there is a qualification requirement:

1. (1)

   the firm should take reasonable care to ensure that no employee of that firm performs that function without a valid certificate; and

2. (2)

   the certificate should be issued before the person starts to perform the function.

1 SYSC 27 Annex 1 G gives examples of how SYSC 27.5.3R works.

1The FCA would expect an individual from overseas using the temporary UK role rule in SYSC 27.5.3R to be accompanied on a visit to a customer in the United Kingdom.

1An individual benefiting from the temporary UK role rule in SYSC 27.5.3R may still be subject to the requirements of TC (Training and competence). However, TC 2.1.9R gives an exemption from certain qualification requirements in TC to an individual benefiting from the temporary UK role rule.

1Under section 63E(7) of the Act, this chapter does not apply to an arrangement which allows an employee to perform a function if the question of whether the employee is fit and proper to perform the function is reserved under any of the Single Market Directives or the auction regulation to an authority in a country or territory outside the United Kingdom.

1Some benchmark activities are within the certification regime under SYSC TP 7.5 (Transitional provisions about benchmarks and the certification regime).

1. (1)

   1If a function falls into more than one of the FCA certification functions in the table in SYSC 27.7.3R, all of those FCA certification functions apply to it.

2. (2)

   For example, if a person’s job involves both FCA certification function (4) (functions requiring qualifications) and (6) (material risk takers), the emergency appointments rule (SYSC 27.5.1R) does not apply to that job.

3. (3)

   Another example is the rule about the territorial scope of this section (SYSC 27.3.1R)) for a UK SMCR firm. For example, if a person’s job involves both FCA certification function (4) (functions requiring qualifications) and (6) (material risk takers), the territorial restriction in that rule does not apply to that job. Instead, this chapter applies without any territorial limitation.

4. (4)

   The reason for (3) is that SYSC 27.3.1R(3) says that there is no territorial limitation on FCA certification function (6) for a UK SMCR firm. As explained in (1), it does not matter that the job also involves FCA certification function (4), to which the territorial limitation does apply.

1. (1)

   2SYSC 27.7.1R(1) means that an FCA-designated senior management function cannot also be an FCA certification function at the same time.

2. (2)

   So an SMF manager performing an activity that forms part of their FCA-designated senior management function is not, by performing that activity, also performing an FCA certification function.

3. (3)

   But if an FCA-designated senior management function does not apply to a firm, performing the function described in the definition of that FCA-designated senior management function can be an FCA certification function.

1 SYSC 27.8.1R(1) only applies to a firm to the extent that CASS applies to that firm.

1A senior manager carrying on the significant management FCA certification function under SYSC 27.8.4R could, for example, be:

1. (1)

   the head of a unit carrying on the activities of:

   1. (a)

      retail banking;

   2. (b)

      personal lending;

   3. (c)

      corporate lending;

   4. (d)

      salvage or loan recovery;

   5. (e)

      proprietary trading;

   6. (f)

      designated investment business;

   7. (g)

      effecting contracts of insurance;

   8. (h)

      credit-related regulated activity;

   9. (i)

      making material decisions on the commitment of the firm’s financial resources, its financial commitments, its assets acquisitions, its liability management or its overall cash and capital planning;

   10. (j)

       processing confirmations, payments, settlements, insurance claims, client money and similar matters;

   11. (k)

       administration of contracts of insurance;

   12. (l)

       complaints handling; or

   13. (m)

       determining whether an applicant should be accepted for credit (including lending) and on what terms; or

2. (2)

   a member of a committee (that is, a person who, together with others, has authority to commit the firm) making decisions in these functions.

1The examples in SYSC 27.8.5G are illustrative only. They are not intended to be exhaustive.

1A business unit is not limited to one that carries on commercial activities with customers and third parties or that earns revenue. A business unit can be an internal support department that has no contact with people outside the firm. It may include, for example, human resources, the legal department,2 operations or information technology.

1For the purposes of the definition of the significant management FCA certification function, the following additional factors about the firm should be considered:

1. (1)

   the size and significance of the firm’s business in the United Kingdom – for example, a firm carrying on designated investment business may have a large number of certification employees (for example, in excess of 100 individuals); or a firm carrying on general insurance business may have gross written premiums in excess of £100m;

2. (2)

   the number of regulated activities carried on, or proposed to be carried on, by the firm and (if relevant) other members of the group;

3. (3)

   its group structure (if it is a member of a group);

4. (4)

   its management structure (for example, matrix management); and

5. (5)

   the size and significance of its international operations, if any.

1When considering whether a business unit is significant for the purposes of SYSC 27.8.4R, the firm should take into account all relevant factors in the light of the firm’s current circumstances and its plans for the future, including:

1. (1)

   the risk profile of the unit;

2. (2)

   its use or commitment of the firm’s capital;

3. (3)

   its contribution to the profit and loss account;

4. (4)

   the number of employees, certification employees or SMF managers in the unit;

5. (5)

   the number of customers of the unit; and

6. (6)

   any other factor which makes the unit significant to the conduct of the firm’s affairs so far as relating to the regulated activity.

1. (1)

   1SYSC 27.8.10R (Functions requiring qualifications) may still apply to an SMCR firm where one of the exclusions in TC App 3.1 (Circumstances in which TC does not apply) or elsewhere in TC applies.

2. (2)

   SYSC 27.8.10R applies to an overseas SMCR firm irrespective of whether the function in TC App 1.1.1R (Activities and Products/Sectors to which TC applies) applies to incoming EEA firms or overseas firms for the purposes of TC.

3. (3)

   The territorial scope of qualification requirements as specified in TC App 2.1.1R (Territorial Scope subject to the limitation in TC Appendix 3) does not apply to the FCA certification function in SYSC 27.8.10R. However SYSC 27.3.1R (Territorial scope) restricts the scope of this chapter outside the United Kingdom.

1 SYSC 27.8.10R(3) means that a person performs the FCA certification function in SYSC 27.8.10R even if for example they are:

1. (1)

   still in training and do not yet need to have the qualification; or

2. (2)

   exempt under TC 2.1.9R (Exemption from appropriate qualification requirements).

1If the definitions or requirements in the ‘Employees included’ column of the table in SYSC 27.8.15R (as adjusted) do not apply to a firm in the corresponding entry in the ‘Type of SMCR firm’ column, that row of the table does not apply to the firm.

1One example of SYSC 27.8.16G is that a credit union is excluded from the table in SYSC 27.8.15R. Therefore the material risk taker FCA certification function does not apply to a credit union. However, it is subject to equivalent PRA requirements.

1 SYSC 27.3.2G (the FCA interprets the phrase ‘dealing with’ as including having contact with and extending beyond ‘dealing’ as used in ‘dealing in investments’) applies to SYSC 27.8.18R.

1The client-dealing FCA certification function generally involves dealing with any person with or for whom the activities in the table in SYSC 27.8.19R are carried out (or their property). That person need not be a client of the firm.

1The restrictions in SYSC 27.7.1R (FCA certification function should require the person performing it to be involved in one or more aspects of the firm’s affairs so far as they relate to regulated activities) also applies to the client-dealing FCA certification function.

1. (1)

   2The client-dealing FCA certification function does not apply to purely administrative roles even though they involve customer contact.

2. (2)

   SYSC 27.8.22AR excludes someone who has no scope to choose, decide or reach a judgement on what should be done in a given situation, and whose tasks do not require them to exercise significant technical skill.

3. (3)

   SYSC 27.8.22AR is likely to exclude a role that is simple or largely automated.

4. (4)

   There is no need to apply SYSC 27.8.22AR to row (1)(b) or (2)(b) of the table in SYSC 27.8.19R, because a person must also be carrying out the functions in row (1)(a) or (2)(a) for the client-dealing FCA certification function to apply and the functions in row (1)(a) or (2)(a) require judgment and skill.

1 Algorithmic trading is not limited to high-frequency algorithmic trading.

1Deploying a trading algorithm includes deploying one on a trading venue on which the firm has not traded before where the firm is already using that trading algorithm on another trading venue.

1 SYSC 27.8.23R(1)(b) (monitoring or deciding whether or not a trading algorithm is compliant) includes testing, such as validation and stress testing.

1. (1)

   1Sometimes an approval or a decision involves sign-off from different people about different aspects of the decision or approval.

2. (2)

   If this is the case, all will have given the approval or decision for the purposes of SYSC 27.8.23R.

1. (1)

   1Sometimes an approval or decision involves sign-off by a number of people of different levels of seniority about the same aspects of the decision.

2. (2)

   If this is the case, only the most senior decision-taker gives the approval or decision for the purposes of SYSC 27.8.23R.

3. (3)

   Where the firm’s procedures do not require the more senior person to carry out a detailed review of the decision of the more junior, both the junior and the senior person will give the approval or decision.

1A firm may have deployed an algorithm even though:

1. (1)

   it has not yet actually been used in the generation or acceptance of orders; or

2. (2)

   it is not actually being used in the generation or acceptance of orders at the moment; or

3. (3)

   it is not currently being used in the generation or acceptance of orders because the circumstances have not arisen for it to start doing so.

1In the examples in SYSC 27.8.30G the algorithm is capable of being used in the generation or acceptance of orders but is not actually generating or accepting them at the moment. However, a firm does not deploy an algorithm if the algorithm is not yet capable of generating or accepting orders because, for example, it is still in development.

1The algorithmic trading FCA certification function applies whether the firm develops the algorithm itself or buys one from a third party.

1A person performing the function described in SYSC 26.4.9R (Exclusion of the legal function) will perform the significant management or the material risk taker FCA certification function, or both.